10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

FORM 10-Q (Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008 or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________ to __________________________________________

Commission File Number:                                                                     005-84737   

SearchPath International, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-3171966
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1350 Euclid Avenue, Suite 325, Cleveland, Ohio	44115
(Address of principal executive offices)	(Zip Code)

(216) 912-1500

(Registrant’s telephone number, including area code)

________________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.____YES         X NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ___                                                                                Accelerated filer ___

Non-accelerated filer ___ (Do not check if a smaller reporting company)                                                                                                      Smaller reporting company   X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

____YES  X NO

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

YES         NO

SEC 1296 (02-08) Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.

As of March 12, 2009, 22,988,000 shares of the issuer’s common stock were issued and outstanding.

RECENT DEVELOPMENTS

As previously disclosed on a Current Report on Form 8-K filed with the Securities and Exchange Commission, on February 10, 2009, Michael W. Woods, a member of the Board of Directors and the Chief Financial Officer of SearchPath Industrial, Inc. (the “Company”) tendered his resignation from the Board of Directors, and his position as Chief Financial Officer of the Company, effective immediately.  Mr. Woods and the Company decided to part ways until the Company could afford a Chief Financial Officer of his caliber, and not as a result of any disagreement between the Company and Mr. Woods.  On February 10, 2009, the remaining Directors unanimously appointed Thomas K. Johnston as the Company’s interim Chief Financial Officer, effective as of such date. Mr. Johnston, 49, is the Company’s founder and has been a Director and our Chief Executive Officer and President since July 19, 2005.

INDEX

			Page No.
PART I. FINANCIAL INFORMATION
	Item 1 - Financial Statements.
		Balance Sheets	1
		Statements of Operations & Accumulated Deficit	3
		Statements of Cash Flows	4
		Notes to Financial Statements	5
	Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
	Item 4T. - Controls and Procedures		18
PART II. OTHER INFORMATION
	Item 1 - Legal Proceedings		19
	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		19
	Item 3 - Defaults Upon Senior Securities		19
	Item 4 - Submission of Matters to a Vote of Security Holders		19
	Item 5 - Other Information		19
	Item 6 – Exhibits		20
	Signatures		21

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

                      SearchPath International, Inc.

               Balance Sheets

ASSETS
			(Unaudited)
		Sept. 30, 2008		June 30, 2008
CURRENT ASSETS
	Cash	$          9,392		$      13,654
	Accounts receivable	52,900		47,500
	Other receivables	9,903		11,401
	Notes receivable – net	380,225		446,244
	Prepaid expenses	37,945		34,956
		490,365		553,755
PROPERTY AND EQUIPMENT - AT COST
	Furniture and equipment	17,887		17,887
	Less: Accumulated depreciation	(9,016)		(8,122)
		8,871		9,765
OTHER ASSETS
	Intangibles – net	4,633		6,135
	Notes receivable – net	258,785		188,786
	Deferred tax benefit	94,300		94,300
		357,718		289,221
		$      856,954		$    852,741

Page 1

LIABILITIES
				(Unaudited)
			Sept. 30, 2008		June 30, 2008
CURRENT LIABILITIES
	Current portion of long-term debt		$      59,996		$      82,384
	Accounts payable		171,277		141,426
	Accrued expenses		599,792		497,777
	Convertible debt		666,744		591,744
	Due to related party		11,579		29,210
			1,509,388		1,342,541
LONG-TERM LIABILITIES
	Long-term debt		63,584		63,584
			1,572,972		1,406,125
SHAREHOLDERS' DEFICIT
COMMON STOCK
	$0.01 par value
	Authorized	100,000,000 shares
	Issued and outstanding	19,998,000 shares	195,480		195,480
ADDITIONAL PAID-IN CAPITAL			-		-
ACCUMULATED DEFICIT			(911,498)		(748,864)
			(716,018)		(553,384)
			$    856,954		$    852,741

The accompanying notes are an integral part of these financial statements.

Page 2

SearchPath International, Inc.

Statements of Operations and Accumulated Deficit

Three months ended September 30, 2008 and September 30, 2007

                                                            (Unaudited)

		2008				2007
			PERCENTAGE OF				PERCENTAGE OF
			NET REVENUES				NET REVENUES
REVENUES - NET
	Franchise fees	$     96,000		45.0	%	$   128,268		34.4	%
	Other	117,512		55.0		244,211		65.6
		213,512		100.0		372,479		100.0
COST OF SALES		58,102		27.2		144,370		38.8
GROSS PROFIT		155,410		72.8		228,109		61.2
OPERATING EXPENSES		294,404		137.9		252,424		67.8
LOSS FROM OPERATIONS		(138,994)		(65.1)		(24,315)		(6.6)
OTHER INCOME (EXPENSE)
	Interest expense	(25,853)		(12.1)		(7,537)		(2.0)
	Interest income	2,213		1.0		0		0
		(23,640)		(11.1)		(7,537)		(2.0)
NET LOSS BEFORE
	PROVISION FOR INCOME
	TAXES	(162,634)		(76.2)		(31,852)		(8.6)
PROVISION FOR INCOME
	TAXES	-		-		-		-
NET LOSS		(162,634)		(76.2)	%	(31,852)		(8.6)	%
ACCUMULATED DEFICIT -
	BEGINNING OF
	PERIOD/YEAR	(748,864)				(298,029)
ACCUMULATED DEFICIT -
	END OF PERIOD/YEAR	$  (911,498)				$  (329,881)
	NET LOSS PER COMMON SHARE (BASIC AND DILLUTED)	(0.008)				(0.002)
	WEIGHTED AVERAGE NUMBER OF COMMON SHARES	19,583,231				18,978,000

The accompanying notes are an integral part of these financial statements.

Page 3

SearchPath International, Inc.

Statements of Cash Flows

Period ended September 30, 2008 and September 30, 2007

(Unaudited)

				2008	2007
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss			$  (162,634)	$  (31,852)
	Adjustments to reconcile net loss to net cash
		used in operating activities:
		Add back (deduct) items not affecting cash
			Depreciation and amortization	2,396	2,088
			Deferred revenue	-	25,500
		Cash provided by (used in) changes in the following items:
			Increase in accounts receivable	(5,400)	(23,250)
			(Increase) decrease in other receivables	1,498	(533)
			Increase in prepaid expenses	(2,989)	(89)
			Increase in deposits	-	(5,431)
			Increase in accounts payable	29,851	201
			Increase in accrued expenses	102,015	120,564
		Net cash provided by (used in) operating activities		(35,263)	87,198
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of property and equipment			-	-
	Acquisition of intangibles			-	(1,735)
	Issuance of notes receivable			(69,999)	(143,900)
	Collection of notes receivable			66,019	8,381
		Net cash used in investing activities		(3,980)	(137,254)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Increase in due to related party			(17,631)	1,393
	Proceeds from convertible debt			75,000	-
	Repayment of convertible debt			-	-
	Proceeds from long-term debt			-	44,890
	Repayments of long-term debt			(22,388)	(1,145)
		Net cash provided by financing activities		34,981	45,138
NET DECREASE IN CASH				(4,262)	(4,918)
CASH – BEGINNING OF PERIOD				13,654	8,007
CASH - END OF PERIOD				$  9,392	$        3,089

Page 4

SearchPath International, Inc.

Notes to Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

SearchPath International, Inc. (the Company) is a franchisor of search and recruitment franchises.  The franchisor and franchises’ primary focus is full time permanent placement of managerial, sales, professional and executive level positions in all industries and locations.  The Company sold three franchises and four franchises during the three months ended September 30, 2008 and September 30, 2007, respectively.

Basis of Presentation

We have prepared the accompanying unaudited financial statements of the Company on the same basis as our annual financial statements.

Interim Financial Statements

The interim financial statements are unaudited. In the opinion of management, these financial statements reflect all adjustments, which are of a normal recurring nature, necessary for presentation of financial statements for the interim periods in accordance with GAAP and with the instructions to Form 10-Q in Article 10 of Regulation S-X.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Concentrations of Credit Risks

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and trade accounts receivable. The Company invests its cash balances through high-credit quality financial institutions. From time to time, the Company maintains bank account levels in excess of FDIC insurance limits. If the financial institutions in which the Company has its accounts has financial difficulties, the Company’s cash balances could be at risk.

Accounts receivable from significant customers representing 10% or more of the net accounts receivable balance consists of the following:

	September  30, 2008	June 30, 2008
% of Accounts Receivable	81%	81%
# of Customers	1	2
	September  30, 2008	June 30, 2008
% of Accounts Receivable	81%	81%
# of Customers	1	2

The September 30, 2008 number represents one internal recruitment placement, and the June 30, 2008 number represents two franchise sales.

Page 5

Revenue Recognition

Franchise agreements have terms ranging from five to ten years.  These agreements also include extension terms of five years, depending on contract terms, and if certain conditions are met.  The Company provides the use of the SearchPath trademarks, training, pre-opening assistance and operational assistance in exchange for franchise fees, royalty fees ranging from 3% to 7% of placement revenue, and advertising fees of .75% of placement revenue.

The Company recognizes revenues from the sale of franchises upon substantial performance by the Company of all material conditions relating to the initial fee.  Royalty and advertising fees are recognized as revenue when the franchisee recognizes the placement.  Placement fees are recognized when the placement is made by the Company.

Net Loss per Share

Basic loss per share is calculated by dividing net loss by the Company’s weighted average common shares outstanding during the period. Diluted net loss per share reflects the potential dilution to basic earnings per share that could occur upon conversion or exercise of securities, options or other such items to common shares using the treasury stock method, based upon the company’s weighted average fair value of the common shares during the period. For each period presented, basic and diluted loss per share amounts are identical as the effect of potential common shares is antidilutive.

Cash and Cash Equivalents

The Company considers all highly liquid investments with insignificant interest rate risk and original maturities of three months or less from the date of purchase to be cash equivalents. The carrying amounts of cash and cash equivalents approximate their fair values. The Company maintains cash and cash equivalents balances at certain financial institutions in excess of amounts insured by federal agencies. Management does not believe that as a result of this concentration, it is subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships.  At September 30, 2008, the Company did not have any investments that would be considered cash equivalents.

Accounts Receivable

Accounts receivable are generally due within 30 days and are stated at amounts due from customers, net of an allowance for doubtful accounts.  Accounts outstanding longer than the contractual payment terms are considered past due.  The Company determines its allowance by considering a number of factors, including the length of time trade accounts are past due, the Company’s previous loss history, the customer’s current ability to pay its obligations to the Company, and the condition of the general economy and industry as a whole.  The Company writes off accounts receivable when they become uncollectible.

Notes Receivable

Notes receivable are stated at fair value, net of an allowance for uncollectible accounts.  The fair value of the notes receivable is estimated by discounting future cash flows using the mid-term applicable federal rate at September 30, 2008 and June 30, 2008, respectively, unless the note includes a reasonably stated rate in the terms.  The Company determines its allowance based on payment history, length of time outstanding and previous history with the franchisee.  The Company writes off notes when they become uncollectible.  At September 30, 2008 and June 30, 2008, the allowance for uncollectible notes receivable totaled $171,000 and $180,200, respectively.

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Property and Equipment

Depreciation of property and equipment is provided by use of the straight-line method over the following estimated useful lives of the assets:

Furniture and equipment 5 – 10 years

Advertising

Advertising and promotional costs are expensed as incurred.  During the 3 months ended September 30, 2008 and 2007, advertising expenses totaled $0 and $500, respectively.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of deferred taxes.  Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (FIN48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes. FIN 48 describes a recognition threshold and measurement attribute for the recognition and measurement of tax positions taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Therefore, FIN 48 will be effective for us beginning October 1, 2007. The cumulative effect of adopting FIN 48 had no effect on the Company’s financial position or results of operations.

In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” which provides a definition of fair value, establishes a framework for measuring fair value and requires expanded disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The provisions of SFAS No. 157 are applied prospectively and had no effect on the Company’s financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 permits entities to choose to measure certain financial instruments and other items at fair value. Under SFAS No. 159, the decision to measure items at fair value is made at specified election dates on an irrevocable instrument-by-instrument basis. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. This standard had no effect on the Company’s financial position or results of operations. 

In December 2007, the FASB issued SFAS No. 141R (revised 2007), “Business Combinations,” replacing SFAS No. 141. SFAS No. 141R changes or clarifies the acquisition method of accounting for acquired contingencies, transaction costs, step acquisitions, restructuring costs and other major areas affecting how the acquirer recognizes and measures the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. In addition, this pronouncement amends previous interpretations of intangible asset accounting by requiring the capitalization of in-process research and development and proscribing impacts to current income tax expense (rather than a reduction to goodwill) for changes in deferred tax benefits related to a business combination. Statement No. 141R is effective for fiscal years beginning after December 15, 2008. Generally, the effect of Statement No. 141R on the Company’s financial position or results of operations will depend on future acquisitions.

Page 7

In December 2007, the FASB issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB 51.” Statement No. 160 requires the recognition of a noncontrolling interest as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. Statement No. 160 is effective for fiscal years beginning after December 15, 2008. The Company has not yet determined the effect on the Company’s financial position or results of operations of complying with the provisions of Statement No. 160.

In March 2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” Statement No. 161 establishes guidelines to report how derivative and hedging activities affect an entity’s financial position, financial performance, and cash flows. Statement No. 161 is effective for fiscal years beginning after November 15, 2008. The Company has not yet determined the effect, if any, that Statement No. 161 will have on the Company’s disclosures regarding derivatives and hedging activities.

2. NOTES RECEIVABLE

Notes receivable consist of the following:			Sept. 30,	June 30,
			2008	2008
	Notes due from franchisees, bearing interest with rates
		ranging between 10.00% - 19.75%, with maturity dates
		through June 15, 2009, secured by all business assets
		of the franchisees	$379,489	$303,905
	Various notes due from franchisees, with imputed interest at
		2.97% at June 30, 2008, and various maturity dates
		through June 30, 2017, secured by all business assets of
		the franchisees	430,521	511,325
			$810,010	$815,230
	Less: Allowance for potentially uncollectible principal and interest		(171,000)	(180,200)
		Less: Current portion	(380,225)	(446,244)
			$258,785	$188,786

Future principal payments on the notes receivable are as follows:
	YEAR ENDING
	Sept. 30
	2009	$194,812
	2010	127,001
	2011	23,195
	2012	21,789
	Thereafter	44,905
		$411,702

Page 8

3. INTANGIBLE ASSETS

Intangible assets, consisting of software, at September 30, 2008 and June 30, 2008, respectively totaled:

				Accumulated		Net Book
		Cost		Amortization		Value
September 30, 2008	$	18,028	$	13,395	$	4,633
June 30, 2008	$	18,028	$	11,893	$	6,135

Amortization of software is provided by use of the straight-line method over 3 years.  Amortization expense totaled $1,502 and $1,358 for the 3 months ended September 30, 2008 and September 30, 2007, respectively.

Future amortization expense is as follows:

	YEAR ENDING SEPT 30,
2009	$              4,199
2010	434
	$              4,633

4. RELATED PARTY TRANSACTIONS

At September 30, 2008 and June 30, 2008, due to related party represents amounts payable to a related party for various shared expenses, including rent, utilities, payroll, and insurance.  Shared expenses totaled $952 and $505 for the 3 months ended September 30, 2008 and September 30, 2007, respectively.  In addition, the related party had paid royalties and advertising fees to the Company in the amount of $450 and $525 for the 3 months September 30, 2008 and  September 30, 2007, respectively.

5. CONVERTIBLE DEBT

During the fiscal year ended June 30, 2006, the Company issued $273,450 of convertible debt.  The Company repaid $5,000 of the convertible debt during fiscal year ended June 30, 2007. During fiscal year ended June 30, 2008, the Company raised $323,294 of additional convertible debt for a total balance of $591,744 at June 30, 2008.  During the fiscal quarter ended September 30, 2008, the Company raised $75,000 of additional convertible debt for a total balance of $666,744 at September 30, 2008.  The debt can be converted into 3,563,090 shares of common stock on the earliest of the 30th day of the onset of public trading or the initial maturity date of the note, which was October 30, 2006 for the first note issued.  In the event the Company does not redeem the note in their entirety as of 540 days subsequent to the date of the note, April 30, 2007 for the first note issued, and the Company has not achieved public trading status, the holders shall have put rights to the Company for the unredeemed portion of the outstanding note, plus any accrued and unpaid interest.  As of the date of the financial statements, one holder has exercised his put right on the notes.  The holder has not been paid, and as a result he could file a judgment against the Company.  The debt accrues interest at an annual rate of 10%, which increased for a portion of the notes to 18% in March, 2007.  At  September 30, 2008 and June 30, 2008, accrued interest on the convertible debt totaled $138,246 and $114,716, respectively.  The accrued interest is recorded as an accrued expense on the accompanying balance sheets.

Page 9

6. LONG-TERM DEBT

Long-term debt consisted of the following:

	Sept 30, 2008	June 30, 2008
Note payable in monthly installments of $2,000 through November 2008, and $7,120 in December 2008, including interest at 7.5%	$          10,951	$          16,674
Note payable in monthly installments of $500 through November 2008 and $1,000 through June 2012, including interest at 7.5%	39,063	39,822
Note payable in monthly installments of $2,200 in July 2008, $3,000 through November 2008, and $5,537 in December 2008, including interest at 9.25%	11,342	19,153
Note payable in monthly installments of $2,000 through June 2009, including interest at 6.99%	17,852	23,475
Non-interest bearing loan payable to franchisee, 5.75% of royalty and advertising fees the Company earns will offset the principle balance owed to the franchisee	44,372	46,844
	123,580	145,968
Less:  Current portion	(59,996)	(82,384)
	$          63,584	$          63,584

Page 10

7.           COMMITMENTS

Leases

The Company leases equipment under operating lease agreements.  Total lease expense for the 3 months ended September 30, 2008 and September 30, 2007 amounted to $3,147 and $3,147, respectively.

Future annual minimum payments under the agreements having remaining terms in excess of one year are as follows:

YEAR ENDING
September 30, 2008
2009	$12,165
2010	3,675
	$15,840

The Company leases its office under an operating lease which expires in July 2010.  Rent expense for the 3 months ended September 30, 2008 and September 30, 2007 amounted to $17,752 and $10,063, respectively.  Minimum annual rentals under the remaining lease term are as follows:

YEAR ENDING
September 30, 2008
2009	$88,176
2010	88,176
2011	88,176
	$264,528

Current lease expires July 30, 2010, and it is the intention of the Company to remain in this space.

Page 11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

References in this Form 10-Q to the “Company,” “SPI”, “we,” “our” or “us” means SearchPath International, Inc., except where the context otherwise indicates. This Form 10-Q contains forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Additional written or oral forward-looking statements may be made by us from time to time, in filings with the Securities and Exchange Commission or otherwise. Statements contained herein that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions described above. Forward-looking statements may include, but are not limited to, projections of revenues, income or losses, capital expenditures, plans for future operations, the elimination of losses under certain programs, financing needs or plans, compliance with financial covenants in loan agreements, plans for sales or acquisitions of assets or businesses, plans relating to our products or services, assessments of materiality, predictions of future events and the effects of pending and possible litigation, as well as assumptions relating to the foregoing. In addition, when used in this discussion, the words “anticipates”, “estimates”, “expects”, “intends”, “believes”, “plans” and variations thereof and similar expressions are intended to identify forward-looking statements.

Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified based on current expectations. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements contained herein. Statements in Quarterly Reports, particularly in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes to Financial Statements, describe factors, among others, that could contribute to or cause such differences. Other factors that could contribute to or cause such differences include, but are not limited to, unanticipated increases in operating costs, labor disputes, failure to properly integrate acquisitions, capital requirements, increases in borrowing costs, product demand, pricing, market acceptance, intellectual property rights and litigation, risks in product and technology development and other risk factors detailed in our Securities and Exchange Commission filings.

Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which speak only as of the date hereof. We undertake no obligation to publicly release the result of any revisions of these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events. There are inherent risks and uncertainties and the following discussion of results of operations and financial condition should be read in conjunction with our financial statements and the accompanying notes included herein.

Summary of Our Business

SPI was incorporated in the State of Delaware on June 30, 2005.  The Company is a franchisor of talent acquisition services.  As of January 31, 2009, the Company has signed on 69 franchises.  Talent acquisition services are a relatively new concept in the human capital industry that include any and all services related to the identification, qualification, acquisition and retention of human capital.  The Company was created by the owner and founder of Pathfinder Search Partners of Cleveland, Inc. (“Pathfinder”).  Pathfinder, an Ohio corporation incorporated in 1998 as Sales Consultants of Shaker Heights, Inc., is an executive recruiting firm focusing on the permanent placement of personnel services.  Pathfinder is currently a franchisee of SearchPath International, and does business under the name “SearchPath of Cleveland Uptown”.

Upon establishing our corporate headquarters in Cleveland, Ohio in 2005, SPI began offering and selling franchises to expand its presence in the U.S.  The Company platform focuses on a “client-centric” set of service offerings that strives to be highly responsive to the ever-changing demands of today’s human capital market. This client focused mindset allows us to tailor each and every project to the specific needs and business line of our clients.

Our organization was founded and is led by driven, focused, highly successful recruiting and franchising professionals that bring dynamic, innovative ideas and proven track records of success to the SPI platform. Our goal is to continually introduce new concepts that help franchisees focus on long-term client and candidate retention, which drives revenue and keeps us competitive with our industry counterparts.

Page 12

In conjunction with the evolution of the franchisor model, three primary sources of revenues are generated by the Company.  The Company recognizes revenues from the sale of franchises upon substantial performance by the Company of all material conditions relating to the initial fee.  Royalty and advertising fees are recognized as revenue when the franchisee recognizes the placement.  Placement fees are recognized when the placement is made by the Company.

Currently, the revenues generated from royalty and advertising fees are not sufficient to fund the operations of the Company.  Therefore, the Company is highly focused on franchise sales to increase its franchisee base and achieve critical mass to fund operations of the Company.  In conjunction with the franchise sales efforts, the Company is also focused on Corporate fees to fund the operations of the Company.

The Company will continue our aggressive pursuit of new franchises through its current resources.  Additionally, the Company intends to engage independent franchise brokers and employ additional Corporate staff to help facilitate rapid franchise growth.  Incentive plans will also be offered to our existing franchise owners to support the franchise sales efforts.  The Company is also exploring new financing partners to provide a wide variety of financing options to the franchisee that will increase the number of qualified franchisee candidates and increase cash received by the Company at the time of close for franchise sales.

As we continue to move forward, our primary focus is to increase royalty and advertising revenues from existing franchisees.  We have revitalized our training and coaching programs to increase placement activities of our existing franchisees and foster organic growth within the Company.

The Company will increase its focus on Corporate revenue generating activities through the addition of a variably-compensated full-time, committed resource to focus on Corporate placement activities including talent acquisition, business development and create a national accounts program.  Additionally, we intend to combine current execution expertise at SPI Corporate with the existing centralized research program to create a new revenue generating unit within the Company.  For a fixed or variably-based fee, this unit will assist all SPI franchisee offices with candidate identification and assist in placements.

Liquidity and Capital Resources

Our principal sources of liquidity consist of cash and cash equivalents, cash generated from operations and borrowing from various sources primarily private investors and vendor payment deferrals. In addition, in September 2008, we received net proceeds from convertible debentures in the amount of $75,000 which was used to fund operations. At September 30, 2008, our cash and cash equivalents totaled $9,392 and we had a working capital deficit of $1,019,023.

The Company's existence is dependent on management's ability to develop profitable operations and resolve the Company's liquidity problems. In order to improve the Company's liquidity, management is actively pursuing additional equity and debt financing through discussions with investment bankers and private investors. There can be no assurance that the Company will be successful in its efforts to raise additional financing. If successful in completing this financing, we may not be able to do so on terms that are not excessively dilutive to our existing stockholders or less costly than existing sources of financing. Failure to secure additional financing in a timely manner and on favorable terms if and when needed in the future will have a material adverse effect on our financial performance, balance sheet and stock price and require us to implement cost reduction initiatives and curtail operations.

Page 13

The following table sets forth our cash flows for the three months period ending:

	Sept. 30, 2008		Sept 30, 2007
Provided by (used in)
Operating activities	$	(35,263)	$	87,198
Investing activities		(3,980)		(137,254)
Financing activities		34,981		45,138
	$	(4,262)	$	(4,918)

Cash Flows From Operations

Our cash flows from operations include cash received from placement fees, recurring royalties and advertising fees, and franchise fees received   Cash used in operations include monthly operating expenses, the largest being salaries expense well exceeding over 50% of total operating expenses. Cash provided by operations decreased $122,461 from the prior period.  Although royalties and advertising fees collected during the period increased slightly, there was a substantial decrease in placement fees as noted below.

Investing Activities

Cash used in investing activities is primarily the cash used for equipment costs and software.  Cash from investing activities is collections on promissory notes for franchise fees that were financed up front by the Company offset by the issuance of new promissory notes.  Cash flowsused ininvesting activities decreased from $137,254 to $3,980 primarily due to increased collections received on notes receivables.

Financing Activities

Cash flows from financing activities include cash proceeds from stock issuance and convertible note offerings and other cash received and used to pay operating expenses.  In 2008, cash flow from financing activities decreased $10,157 to $34,981.

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Results of Operations

Results of Operations for the Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

(UNAUDITED)

	Three Months Ended			Three Months Ended
	Sept. 30, 2008			Sept. 30, 2007		Change ($)		Change (%)
Revenues
Franchise fee income	$	96,000		$	128,268	$	(32,268)		(25)	%
Royalties & advertising fees		61,580			57,230		4,350		8	%
Other		55,932			186,981		(131,049)		(70)	%
Total revenues		213,512			372,479		(158,967)		(43)	%
Cost of revenues		58,102			144,370		(86,268)		(60)	%
Gross profit		155,410			228,109		(72,699)		(32)	%
Margin %		73%			61%
Operating expenses:
Compensation expense		159,521			160,651		(1,130)		(1)	%
Other general and administrative		32,236			21,079		11,157		53	%
Professional fees		57,052			26,223		30,829		118	%
Facilities		29,608			26,655		2,953		11	%
Reimbursable expenses		15,755			15,445		310		2	%
Marketing & conferences		232			2,371		(2,139)		(90)	%
Total operating expenses		294,404			252,424		41,980		17	%
Operating income (loss)		(138,994	)		(24,315)		(114,679)		(472)	%
Interest expense		(25,853)			(7,537)		(18,316)		243	%
Interest income		2,213			0		2,213		100	%
Net Income (Loss)	$	(162,634)		$	(31,852)	$	(130,782)		411	%

Page 15

Income

In 2008, Franchise Fee Revenues decreased by $32,268 to $96,000, a 25% reduction compared to the comparable period in 2007. The change is attributable to the decrease in sales by one franchise.  Four franchises were sold in 2007 compared to only three being sold in this period in 2008.

Royalties and Advertising Fee Income increased $4,350 due to the caliber of franchises being sold.  One franchise who had contributed substantially to royalties during the 2007 period had left by the 2008 period.  However several seasoned franchisees have recently joined the Company and we believe that we will continue to see an increase in this number.

Other Income decreased by $131,049 to 55,932.  Other income consists primarily of internal placements by the CEO.  This decrease is due to his redirection on the franchise side of the business versus personal recruiting production.

Cost of Revenues

Cost of revenues decreased by $86,268 to $58,102.  This decrease primarily reflects the decrease in placement fees due to the CEO focusing on franchise development and a portion of the decrease is due to less external franchise sales referrals.

The decrease in cost of goods sold from $144,370 in 2007 to $58,102 in 2008 is mostly due to the use of independent contractors who are paid higher commission on their placements.

Operating Expenses

Compensation expense decreased just slightly (less than 1%).  Only one substantial hire, Executive Director of Field Support was made from period to period, however to counter this increase during the period, the CEO had taken less compensation during these compared periods.

Other general and administrative expenses increased $11,157 to $32,236 a 53% increase, due to an increase in office expenses relating to new hires and initiating a new distribution method for information.

Professional fees saw a substantial increase of $30,829 to $57,052 due to the expenses incurred with a public offering.   Accounting expenses attribute to almost the entire increase.

Facilities expense saw only an 11% increase to $29,608, primarily due to a small increase in office rental fees.

Reimbursable expenses increased $310, a 2% increase due to controlling travel costs with increased gas prices during this time period.

Marketing & meetings/conference expenses decreased $2,139 to $232, a 90% decrease, due to the timing of certain conferences.

Interest Expense

Interest expense increased $18,316 to $25,853, a 243% increase due to a $398,294 increase in Convertible Notes balance from October 1, 2007 to September 30, 2008.

Interest Income

Total interest income earned on outstanding franchise fees notes receivables increased 100% from $0 to $2,213  due to more aggressive payment plans that include charging monthly interest on unpaid principal balances for all franchises financed through the Company effective July, 2007.

Page 16

Revenue Recognition

Franchise agreements have terms ranging from five to ten years.  These agreements also include extension terms of five years, depending on contract terms and if certain conditions are met.  The Company provides the use of the SearchPath trademarks, training, pre-opening assistance and operational assistance in exchange for franchise fees, royalty fees ranging from 3% to 7% of placement revenue, and advertising fees of .75% of placement revenue.

The Company recognizes revenues from the sale of franchises upon substantial performance by the Company of all material conditions relating to the initial fee.  Royalty and advertising fees are recognized as revenue when the franchisee recognizes the placement.  Placement fees are recognized when the placement is made by the Company.

Accounts Receivable

Accounts receivable are generally due within 30 days and are stated at amounts due from customers, net of an allowance for doubtful accounts.  Accounts outstanding longer than the contractual payment terms are considered past due.  The Company determines its allowance by considering a number of factors, including the length of time trade accounts are past due, the Company’s previous loss history, the customer’s current ability to pay its obligations to the Company, and the condition of the general economy and industry as a whole.  The Company writes off accounts receivable when they become uncollectible.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of deferred taxes.  Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Notes Receivable

Notes receivable are stated at fair value, net of an allowance for uncollectible accounts.  The fair value of the notes receivable is estimated by discounting future cash flows using the mid-term applicable federal rate at date of financials.  The Company determines its allowance based on payment history, length of time outstanding and previous history with the franchisee.  The Company writes off notes when they become uncollectible

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.  The Company has no interests in or relationships with any special purpose entities or variable interest entities.

Page 17

Item 4T. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (the “Exchange Act”) Rule 13a-15(e)) as of the end of the period being reported (the “Evaluation Date”), has concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures, were effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Changes in Internal Controls

No significant changes in the Company’s internal controls or in other factors that could significantly affect these controls following the Evaluation Date came to management’s attention.

Management’s Report on Internal Control over Financial Reporting

This quarterly report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

There are no material pending legal proceedings to which the Company is a party or of which any of their property is the subject.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) During the fiscal quarter ended September 30, 2008, the Company offered and sold an aggregate of $75,000 of convertible notes.  These two convertible notes were offered and sold to accredited investors and are convertible at a price of $0.20 per share into the Company’s Common Stock at the earlier of: (i) at the holders election on the initial maturity date (one year from issuance) of each such note, or (ii) upon the thirtieth day following the onset public trading of the Company’s common stock. The date of sale and amount sold of such notes were follows:

Date                                Amount Sold

September 15, 2008                         $50,000

September 12, 2008                         $25,000

These securities were not sold through an underwriter and there were no underwriting discounts or commissions involved. The offer and sale of the notes was conducted pursuant to Rule 506 of Regulation D of the Securities Act on the basis that the private placement did not involve a public offering.

Other than the securities mentioned above, the Company did not issue or sell any securities during the quarter ended September 30, 2008.

(b) Not applicable.

(c) Not applicable.

Item 3. Defaults Upon Senior Securities.

The Company has $416,744 in notes that became due as of November 6, 2008 or sooner and are currently in default. The notes shall be due and payable upon written demand by holder if an event of default occurs.  The Company is currently working to correct the default. The Company continues to accrue interest on the notes at the stated annual interest rate of 10%.

As of December 31, 2008, accrued interest on the defaulted notes was $131,638 for a total arrearage of $548,382.

Item 4. Submission of Matters to a Vote of Security Holders.

None

Item 5. Other Information.

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Per the May 27, 2008 employment agreement with Michael Woods, he would be entitled to a warrant for 75,000 shares to be included in the next registration statement (Form S-1 or equivalent) with an exercise price of $0.01.  The Company has not yet filed a registration statement; thus, the warrants have not been granted.

Item 6. Exhibits.

Exhibit Index

31.1	Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a).
32.1	Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer.

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Signatures

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SearchPath International, Inc.

(Registrant)

Date: March 12, 2009

By:           /s/ Thomas K. Johnston                                      

Thomas K. Johnston, Director, Chief Executive

Officer, President and Chief Financial Officer

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECURITIES EXCHANGE ACT RULES

13A-14 AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Thomas K. Johnston, the Chief Executive Officer and Chief Financial Officer (the principal executive officer and principal financial officer) of SearchPath International, Inc., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of SearchPath International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:March 12, 2009

              /s/ Thomas K. Johnston                         

Thomas K. Johnston

Chief Executive Officer and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of SearchPath International, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2008 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the period presented in the Form 10-Q.

Dated  March 12, 2009

              /s/ Thomas K. Johnston                         

Thomas K. Johnston

Chief Executive Officer and

Chief Financial Officer

The foregoing Certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form 10-Q or as a separate disclosure document.